Business Directories

Family businesses 'must professionalise governance'

Dead Sea, May 28, 2013

Arab family businesses face the risk of destruction of value if they fail to professionalise the governance structures of their businesses, an expert has warned.

Global statistics show that less than 10 per cent of family businesses globally continue to create value beyond the third generation mainly due to this value being destroyed as a result of inadequate succession planning, said Badr Jafar, managing director of the Crescent Group and CEO of Crescent Enterprises, a UAE-based conglomerate in his address at the World Economic Forum, held recently in the Dead sea..

With over $1 trillion of assets set to be handed over to the next generation in the next five to ten years, according to a recent report by the IMF, without the right corporate governance frameworks in place there is significant scope for conflict and complications which will in-turn reverberate across all sectors of Arab societies, he said.

Family businesses make up over 85 per cent of the whole Arab world’s non-oil GDP, and have significant influence both societally and politically as a result of their extensive networks and relationships, Jafar said

Jafar explained that as a result of this influence, “Family businesses across the Gulf region and the rest of the Arab world have a major opportunity to positively engage in dealing with the socio-economic challenges that exist in our region, including the massive youth unemployment, skills deficit, and inadequate ecosystem for promoting entrepreneurship.”

A study revealed that almost three-quarters of the region’s family businesses are owned and managed by the second generation, with only 5 per cent in the hands of a fourth generation or beyond, and only 42 per cent of these business have a shareholder's agreement in place, and more than three quarters currently have no procedures in place to deal with conflict.

According to Jafar, family-owned businesses have implications that involve more than merely serving a financial purpose; they are a means of sharing certain values and providing a service to the community in which it is integrated.

According to the recent PWC survey, surveyed Arab family businesses reported an 83 per cent growth in sales over the past year as compared to 65 per cent globally.“With success comes deep responsibility and we as family business in the region must actively seek to play an important role in addressing some of the challenges that our great region of the world faces,” Jafar added.

The role of women was emphasized as being of paramount importance to the health of the region and its economic development.

“The growth and development of the Arab family business within the last two decades has shown that the journey from family to broad equity-based ownership is not the only path on which a successful company can travel," said Jafar. - TradeArabia News Service